Wine Matures As Investment Class
Wednesday, January 05, 2011

Fine wine may not be every drinker's tipple of choice. But those who invested in wine rather than consumed it over the past 12 months have seen in the New Year all the wealthier (and perhaps healthier) for it, having seen their investment outperform conventional investments such as stocks and gold.

The London International Vintners Exchange (Liv-ex) Fine Wine 50 Index, which tracks the Medoc First Growths across ten different vintages, has risen 57% in 2010. By comparison, the S&P 500 and FTSE 100 indices rose 13% and 11% respectively last year, gold increased by 35% and the price of crude oil increased by 20%.

The Liv-ex index has also outperformed these assets over longer timeframes - in the case of stocks substantially so. On the December 29, the Fine Wine 50 Index broke the 400 point barrier for the first time, having been based at 100 in January 2004. Over the past five years, the wine index has gained by 269%. In the meatime, gold has appreciated by 204%, crude oil by 69%, the FTSE 100 by 5% and the S&P 500 by just 1%.

Founded in 1999, Liv-ex runs an internet- and phone-based information, trading and settlement platform for fine wine merchants. The Liv-ex membership has expanded rapidly to include the world's major trade buyers and sellers, including merchants, brokers, retailers, importers, exporters and wine funds. The exchange is regulated by the membership committee, which is made up of elected members of the trade and Liv-ex management.

The bulk of Liv-ex transactions are in the best French labels from Bordeaux, Burgundy, Champagne and the Rhone. The best names from Italy, Germany, Spain, Portugal and the New World are also traded.

One fund which uses Liv-ex to value its portfolios reported last month that a five-year investment bought in 2005 has produced an annulized return of 16.8%.

The Wine Investment Fund, which caters to both individuals and insititutional investors (minimum investment GBP10,000 and GBP1m respectively), buys up mainly fine wines from the Bordeaux region of France where there are only 35 producers of investment grade wine. In October 2005, the fund bought a Latife 1986 vintage for GBP2,754 per case, which later sold at auction for GBP16,000 per case.

The Wine Investment Fund's 2003 and 2004 investment tranches went on to yield 15.84% and 13.01% resecptively.